Takenaka Says Japan Has Best Shot to End Deflation in Decade

By Toru Fujioka and Masahiro Hidaka -
Feb 27, 2013

Japan has the best opportunity to
beat deflation in more than a decade, said Heizo Takenaka, the
architect of policy changes credited with solving the nation’s
bad loan problems after a burst real-estate bubble.

Prime Minister Shinzo Abe’s administration “provides an
opportunity to fix a very inappropriate monetary policy,” by
the Bank of Japan (8301), Takenaka, a former economy minister, said in
an interview today. “This is a big chance to end deflation.”

Abe’s efforts to reverse falling prices have sent the yen
more than 10 percent lower against the dollar in the last three
months, pushing up stocks and buoying corporate profits. The
premier is likely to nominate Asian Development Bank President
Haruhiko Kuroda as BOJ governor, according to two officials with
knowledge of the discussions, as he looks to usher in a new
leadership team to achieve a 2 percent inflation target.

At 1:28 p.m. in Tokyo, the Japanese currency was little
changed at 91.95 per dollar.

“It’s not surprising if the yen weakens to around 95 per
dollar,” as it’s correcting from excessive gains, Takenaka, 61,
said. “There is also a risk that the yen depreciates
considerably past 100 if there is no fiscal consolidation after
expansive monetary and fiscal policy.”

The Nikkei 225 (NKY) Stock Average has risen by about 30 percent
since mid November, when the election that brought Abe to power
was announced. Honda Motor Co. plans to open its first domestic
factory in almost 50 years this summer.

Nomination Timing

Chief Cabinet Secretary Yoshihide Suga said today that Abe
aims to present his nominations tomorrow to replace outgoing
central bank chief Masaaki Shirakawa and his two deputies, who
step down on March 19.

“Global understanding of Japan’s monetary policy will be
greatly enhanced,” by having Kuroda at the helm of the BOJ,
Takenaka said, adding that the BOJ will be less likely to stray
from global standards on monetary policy.

Kuroda was the currency chief at the Ministry of Finance
from 1999 to 2003 and has headed the ADB since 2005.

“I told Abe yesterday that Kuroda is a great pick,” said
Takenaka, who has known the ADB president for about three
decades. “His understanding of economics is similar to ours and
he is known in the international community.”

Former Bank of England board member Adam Posen echoed that
view today, saying that Kuroda would have a great impact at the
central bank.

Takenaka said that the BOJ should buy more government bonds
to add liquidity to the market.

Still, Abe must ensure fiscal consolidation to contain
Japan’s rising debt and implement a growth strategy now he has
succeeded in pushing for bolder monetary policy, said Takenaka,
who is a professor at Tokyo’s Keio University.

Japan’s public debt will swell to 245 percent of gross
domestic product this year, the International Monetary Fund
estimates.